Ch 7: Risk Analysis

Question 1

What is on the the Prouty Approach table?

Answer 1

• Horizontal: loss Frequency
  (nil / slight / moderate / definite)
• Vertical: Loss Severity
  (severe / significant / slight)

(more qualitative, rather than quantitative)

Question 2

Under the Prouty Approach, what kind of risk mitigations lies on:

1. the first raw (Sever)
2. Second raw (significant)
3. Third raw (slight)?

Answer 2

1. Reduce or prevent / Reduce or prevent / Reduce or prevent or retain / avoid.
2. reduce or prevent / reduce / reduce or prevent or retain / avoid.
3. reduce or prevent / reduce / reduce or prevent / prevent or retain.

Question 3

Risk analysis:

Answer 3

Provide information for understanding risks and for making decisions to mitigate them. It could be Qualitative or quantitative. It assesses the frequency (likelihood) and severity (consequences) of risk.

Question 4

Probabilities can be:

Answer 4

Theoretical (coin toss): independent outcomes!
or
empirical: based on experience or history (forecasting situation)

Question 5

Law of large numbers

Answer 5

as the sample size of observations increase, our estimated outcomes will be closer to the actual outcomes.

Question 6

Process of using probability analysis, and list the parts of probability distribution.

Answer 6

First: establish probability
Second: draw probability distribution

Parts:

1. Expected value: weighted average of all possible outcomes
2. Mean: # of outcomes divided by number of outcomes.
3. SD: Measure of dispersion
4. Coefficient of variation: SD / mean

Question 7

What is trend analysis?

Answer 7

Analysis that identifies patterns in past data and projects them into the future.

Question 8

what is Decision Tree Diagram and what are its shapes:

Answer 8

1. It is a way to examine the consequences of decisions.
2. Analyze both negative and positive outcomes.
3. Square: Decision
4. Circle: Uncertainty (external event) **
5. P: probability assigned at choices following the uncertainty circle

Question 9

what is Event Tree Analysis?

Answer 9

1. A way to examine all possible consequences of an accidental event.
2. Analyzes negative consequences only.
3. Identify an initiating event
4. Quantify or evaluate possible outcomes

Question 10

List the Dimensions of loss exposure:

Answer 10

1. Loss Frequency
2. Loss severity
3. Total dollar loss: loss frequency * loss severity
4. Timing

Question 11

as part of evaluating the different ways of analyzing event consequences, list the similarities between decision trees and event trees!

Answer 11

In general both share similar approach, appearance, and process. Also both:

1. portray and analyze various pathways and their outcomes
2. provide qualitative and quantitative analysis.
3. affords the advantage of visual portrayal of event sequences and outcomes.